Transcript Insurance for climate change related risks from a Chinese

FCCC Workshop on Insurance and Climate Change Related Risks
12-13 May, 2003, Bonn, Germany
Insurance for climate change related risks
from a Chinese perspective
Jiahua Pan
the Chinese Academy of Social Sciences
Contents

Climate change related disasters: risks and
vulnerability
 Risks and insurance: the experience
from China
 Response Actions to risks: the example of
SARS
 Conclusions and Discussions
Climate change related disasters
risks and vulnerability (1-1)
 Climate change related risks
•
risk: “the combination of probability, or frequency, of occurrence of a defined
hazard and the magnitude of the consequences of the occurrence.”
• Vulnerability: susceptible to, or unable to cope with, adverse effects of climate
change, including climate variability and extremes; is a function of the character,
magnetite, rate, sensitivity and adaptive capacity.
• CC stakes are high: ocean circulation, sea level, the water circle, carbon and
nutrient circles, air quality, the productivity and structure of natural ecosystems, the
productivity of agricultural, grazing, and timber lands, and the geographic
distribution, behavior, abundance, and survival of plant and animal diseases.
• CC risks are long term, macro level, uncertain, unmanageable by individuals;
must be converted to short term or immediate, micro-level, more specific and
deterministic: rainstorm, typhoon, cyclone, windstorm, flooding, snowstorm,
hailstorm, ice, landslides, mud-rock flow, dust-storm, forest fire, lightning, drought.
• impact on & role of insurance industry: mitigation, asset management, business
operation
Climate change related disasters
risks and vulnerability (1-2)
 Damages from climatic disasters in 2002, China:
large in scale and huge looses
• the direct economic losses caused by the drought in Shandong Province
alone (lower reach of the Yellow River) are estimated at RMB10 billion
(GDP in China is 1000 billion in 2002).
• Three tropical storms incurred serious damages (over Y500 million) to
south and east coastal provinces (Guangdong, Guangxi, Zhejiang and Fujian,
the most dynamic regions in the Chinese economy). Two exceptionally
serious flooding occurred in Northern Guangdong, with 50 townships
affected and 350,000 people made homeless. The estimated loss is as high as
RMB 700 million.
• Other large scale climate related disasters include landslides in South
western China (Sept – Dec 2002 only: 11 incidences, 105 deaths, 96 injured)
and snowstorm in Inner Mongolia (100,000 herdsmen affected, losses
RMB37 million).
Climate change related disasters
risks and vulnerability (1-3)
Flood and drought: large and increase in scale
1985
1990
1995
1997
1998
2000
Irrigated area (m ha)
44.04
47.40
49.28
51.24
52.30
53.8
Drainage area (mha)
18.54
19.34
20.07
20.28
20.53
20.99
Dykes (‘000km)
177
220
247
248
251
271
Protected by dykes (m ha)
31.06
32.00
30.61
32.69
34.17
39.6
Area affected by flood (m
ha)
14.20
11.80
12.73
11.41
22.29
7.32
Area affected by drought
(m ha)
22.90
18.18
23.45
33.51
14.24
40.51
Climate change related disasters
risks and vulnerability (1-4)
 The disadvantaged most vulnerable
• two interpretations of the disadvantaged: climaticgeographical-topographic location and social-economic
status of individuals.
• e.g.: road accidents in China, 2000: (1) road conditions; (2)
vehicle conditions; (3) access to emergency treatment
Number of accidents
deaths
injuries
National total
616971
93853
418721
% occurred in urban area
62.4
22.6
31.7
% in rural area
37.6
81.4
68.3
Risks and insurance
the experience from China (2-1)
 Insurance sector in China
 state comanpy (PICC) from 1949-1980: small in
scale and limited operation (premium in 1980
<RMB500million), dominated by property insurance
(>90%)
in 2002: 54 insurance companies; premium RMB300
billion; life insurance takes the lead
Risks and insurance
the experience from China (2-2)
 Insurance premium and claims in China, 2000 : property
coverage is limited.
Premium
Property insurance
Claims
payments
58.56
38.05
and
Enterprise property
7.38
9.70
Household property
0.81
0.76
23.34
38.59
Ship and freight transport
2.94
4.75
Satellite and nuclear energy
0.19
0.38
Construction and installation of investment projects
0.38
0.38
Liability, guarantee, export credit and other
2.75
3.42
agriculture
0.25
0.57
Motor vehicles
Life insurance
61.95
Life
41.44
55.19
33.08
Health
1.75
2.28
injury
5.01
6.08
Total (%)
100.00
100.0
Total (amount, billion RMB)
159.8
52.6
Risks and insurance
the experience from China (2-3)
 Insurance coverage

low coverage for climate related damages in property insurance: PICC’s policy
for property insurance: covers damages caused by fire, explosion and lightning only.
Damages caused by extreme weather events are not insured, such as rainstorm,
typhoon, cyclone, windstorm, flooding, snowstorm, hailstorm, ice, landslides, mudrock flow PICC divided into three in 1990: life, property, re-insurance
 Agricultural properties are considered “loss-making” insurance.
 The PICC terms of insurance for hail damages to wheat: Newly reclaimed and
intercropping are excluded. Yield level insured is 20%-60% of the average
production from the previous 3-5 years. Price of wheat used in the insurance is the
lowest government protection price.
 Insurance companies and agents are largely concentrated in urban and coastal
regions. Limited insurance offices in rural townships and in the west and remote part
of the country where extreme weather events occur more frequently and incur
heavier damages.
Risks and insurance
the experience from China (2-4)
 Social insurance for CC related disasters as public bads?
 Climate hazards like flooding and drought: (1) irregular,
unpredictable and beyond individual control; and (2) large in scale
and public in nature.
 possible strategies: (1) risk avoidance. Emigration is one way to
avoid being caught by climate disasters. (2) adaptation to the
disaster, (3) risk prevention, dykes, reservoirs, cannels (4) reliance
on relief efforts from the government and charities and (5)
insurance: moral hazard & adverse selection; high insurance rate
 insurance companies: (1) no coverage of CC related damages in
insurance policies. (2) Re-insurance. (3) insurance for the Three
Gorges Dam
Response Actions to risks
the example of SARS (3-1)
 The SARS Epidemic
 surprise attach: unpredicted and unknown, highly infectious
and no effective means for treatment, SARS panic is everywhere
 SARS disturbs normal ways of life and work. Schools closed,
offices shut, meetings cancelled, official holidays shortened, and
indoor recreation forbidden in Beijing
 number of SARS cases totaled 4698; 223 deaths in mainland
China (9 May).
 Beijing 2136 cases of SARS and 1486 suspected cases, with
death number of 112 (9 May).
Response Actions to risks
the example of SARS (3-2)
 The role of insurance in fighting SARS:
 by 8 May, there were only 163 cases all over China that made
claims for insurance payment: 3.47% over all the cases insured.
The role of the insurance industry is limited.
 opportunities for the insurance industry: increased public
awareness of medical and life insurance; promotion of insurance
policy; new insurance products
Response Actions to risks
the example of SARS (3-3)
 Lessons learned
 early response and early action;
 preventive measures;
 public awareness raising;
 risk spreading by commercial insurance;
 capacity to deal with emergent disasters;
 government support for facilities and to the poor;
 establishment of an early warning system; and
 R & D effort for better understanding of the disasters.

Conclusions and Discussions (4-1)
conclusions

From the experiences in China, climate change related risks
are high and the disadvantaged are most vulnerable to such risks.
 Insurance companies so far have not been very active in
providing insurance coverage for climate disasters due to the
high risks involved and low ability to pay from the poorer
section of the population
 For climate change related disasters, the construction of
necessary infrastructures is one of the most effective means to
reduce risks and investment in risk prevention. Infrastructures in
natural disaster prevention may include good road systems,
flood protection, reservoirs, dykes and early warning systems.

Conclusions and Discussions (4-2)
discussions

climate change and extreme weather events: climate change
impacts such as sea level increase and water circle need to be
translated into their adverse effects on human life and assets for
actions
 risk assessment: a more concrete physical form before
economic and financial analysis: (1) Hazard identification; (2)
Occurrences: frequency, geographical locations, severity,
damages; (3) vulnerability; and (4) Risk characterization
 economic analysis: Insurance premium has to be determined
on a monthly or yearly bases. These make the assessment of
risks for insurance difficult and discourage the use of insurance
for risk spreading.